Currency Update - Wednesday 4th December 2019
AUD
The RBA left rates unchanged yesterday in what was their last meeting until February next year. Whilst this decision was widely expected, Gov Lowe’s statement was relatively upbeat about the state of the local economy. He repeated his opinion that the economy has reached a ‘gentle turning point’, citing the recent uptick in housing prices and that the full effect of the three interest rate cuts this year are still yet to flow through. The comments strengthened the AUD and were also enough to support it through the overnight session when risk sentiment took a hit from hard line comments from Trump regarding trade tariffs on China and also Europe. Gold surged over 1% and the VIX (the risk index) rallied 9% toward 2 month highs, both reactions to the downturn in the outlook for the global trade environment. The local data continues today with Q3 GDP figures released late this morning, followed closely by Chinese Caixin Services PMI.
USD
AUD continued a good start to the week yesterday, trading as high as 0.6862 overnight before opening this morning off the highs at 0.6845. The USD had a tough overnight session, speaking in London Trump said that it is right for the US not to be taken advantage of on NATO funding and trade. He blasted French President Macron for “very insulting” comments on NATO and said that history shows “no-one needs NATO more than France”. On trade he said that he is doing very well on a deal with China if he wants to make it and that we will find out soon. Reflecting these comments, US 10 year yield dropped sharply giving up 10 bps, the DXY (index of general USD strength) was down and Wall Street also showed losses approaching 1.5%. Tonight we will get the ADP Non-Farm Employment report as well as the ISM Non-Manufacturing PMI result. After a strong start to the week, support for the AUD now sits at 0.68 with resistance piling up around 0.6880.
EUR
AUD trading better against EUR, taking advantage of European trade tensions with the US, opening at 0.6179 this morning. There was plenty of back and forth with both sides taking shots on trade. The French Finance Minister Le Maire said that the US tariff plan is unacceptable and that the EU will be ready to retaliate. Trump was on the wires saying that NATO must increase their military spending, singling our Germany by saying if they did not they risked trade actions being taken against them. European equities were understandably weaker, down almost 1.8% at the bell. On data, and Services PMIs from the main EZ economies to come tonight.
GBP
AUD gave up its post-RBA gains overnight, opening at 0.5265 this morning. The GBP was firm, avoiding much of the crossfire from the US/Europe trade battle. Boris is still looking good for next week’s UK election, the latest Kantor poll showed the Conservatives with 44% of the vote with Labour on 32%, GBP enjoying the Brexit implications of a resounding win for Boris. Final Services PMI from the UK tonight is the last piece of major data for the week.
NZD
AUD just holding on to the 1.05 handle this morning after dipping into the 1.04s in yesterday’s session. This morning’s Fonterra milk auction showed a reduction in the GDT Price Index of 0.5%, however the NZD remaining steadfast. RBNZ Gov Orr speaks tomorrow in what will be the highlight of the week from across the ditch.